Spending $716 Billion, Twice
Time for an honest debate on Medicare.

At the signing of the Balanced Budget Act in 1997


The issue of $716 billion in spending cuts to Medicare has taken center stage, with accusations flying about who is raiding Medicare and pushing Granny off the cliff.

So here are the facts:

In 1997, the Republican Congress passed, and President Bill Clinton signed, the Balanced Budget Act (BBA), which gradually reduced payments to Medicare providers as part of a plan to reduce overall federal spending. The key to the policy is the Sustainable Growth Rate, which requires the government to adjust payments for physician services each year so that growth in Medicare spending does not exceed the growth of GDP.

But Medicare’s fee-for-service model works at cross-purposes with this policy, and incentivizes doctors to bill for more and more services, driving up Medicare spending to higher levels year after year. Further, each time the payment cuts are about to be triggered, doctors swarm Capitol Hill to get Congress to postpone them. At first, the payment cuts would have been just 1 or 2 percent if doctors hadn’t succeeded in killing them. But over time they have accumulated, and now doctors would be paid 27 percent less for treating Medicare patients if the originally intended cuts had gone into effect. And the cuts would continue in perpetuity.

Doctors say these payment reductions would cripple their practices and make it difficult for them to see Medicare patients, especially since Medicare already pays doctors less than private plans.

The American Medical Association wants a permanent “doc fix” that would end the threat of these cuts, and the fix was the main demand the AMA made when it was at the negotiating table over Obamacare. The White House promised the fix, but reneged at the last minute. The doc fix was yanked from the bill, largely because of its $208 billion price tag. Astonishingly, and much to the dismay of doctors across the country, the AMA endorsed Obamacare anyway, giving the bill an important push over the finish line.

Last month, following the Supreme Court’s disastrous decision about Obamacare, the Congressional Budget Office recalculated the ten-year cost of the health-overhaul law to determine what the court’s decision would mean to the overall cost of the law. The CBO concluded that the cuts to Medicare now total $716 billion over 10 years — chiefly because the ten-year window is moved three years into the future and, as health costs grow every year, so does Medicare spending. (The law contains other Medicare payment reductions as well.)

The president’s plan to “save” Medicare relies primarily on paying doctors and hospitals less and less by keeping in place the 1997 trajectory for spending cuts. According to Medicare actuaries, this would mean that 40 percent of providers eventually will either go bankrupt or stop seeing Medicare patients altogether.